Motion foward is stoping the character's fall
I haven't used logic bricks since 2008, and I quickly moved into python scripting for more flexible control, but I believe the issue you are seeing is from your Servo Control attempting to match all of the velocities, instead of the axis you expect it to effect.

I assume Z is up, and that your servo control is set to zero. The servo control tries to reach zero velocity on the z axis, effectively resisting gravity!

The XYZ limit buttons below the Linear Velocity field actually limit the force the servo can apply to reach the target linear velocity. If you turn on the Z limit button and leave the min/max values at zero, then the servo control will have no power over your Z axis.

Good luck!